HubSpot, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited consolidated results compared with Q1 2021. HubSpot provides a cloud-based CRM platform, with subscription revenue accounting for 97% of Q1 revenue. At quarter-end, the company reported 143,689 customers and 6,404 full-time employees.
Key financial results
Amounts below are in millions of U.S. dollars, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $395.6 | $281.4 | +41% |
| Subscription revenue | $385.0 | $270.3 | +42% |
| Gross profit / margin | $322.7 / 82% | $226.6 / 81% | Margin +1 percentage point |
| Operating expenses | $333.8 | $241.7 | +38% |
| Operating loss | $(11.2) | $(15.0) | Loss narrowed |
| Net loss | $(9.3) | $(23.2) | Loss narrowed |
| Basic and diluted loss per share | $(0.20) | $(0.50) | Improved |
| Cash from operating activities | $82.2 | $62.7 | +31% |
- Customer count grew 26%, from 113,925 to 143,689. Average subscription revenue per customer increased to $11,030 from $9,886.
- Sales and marketing expense rose 40% to $197.1 million; research and development increased 36% to $92.7 million. Management attributed expense growth primarily to higher headcount and investment to support growth.
- Cash, cash equivalents and short- and long-term investments totaled approximately $1.430 billion at March 31, 2022, excluding restricted cash. Working capital was $829.1 million.
- Convertible notes had a combined carrying value of approximately $472.1 million: $19.4 million current and $452.7 million long-term. The notes’ principal amounts were $19.4 million due in 2022 and $459.1 million due in 2025.
- Deferred revenue was $462.6 million, including current and long-term amounts. Revenue recognized from opening deferred revenue was $227.1 million.
Material changes and unusual items
- Revenue growth reflected more customers and higher average subscription revenue per customer, supported by customer demand and expanded sales capacity. Professional services and other revenue declined 4%, partly due to non-recurring advertising revenue in the prior-year period.
- Net loss improved alongside lower operating loss and interest expense. Interest expense fell to $1.0 million from $9.4 million, mainly because HubSpot adopted updated convertible-debt accounting guidance on January 1, 2022. Prior-year figures were not restated, so this comparison is affected by the accounting change.
- Other income included a $4.2 million gain from an observable price increase in a strategic investment. Q1 2022 comprehensive loss also included $4.0 million of unrealized investment losses.
- Stock-based compensation was $45.7 million, up from $32.4 million in Q1 2021.
- Investing cash outflow was $55.0 million, mainly reflecting investment purchases, property and equipment, strategic investments, and capitalized software development, partly offset by investment maturities. Financing cash inflow was $5.9 million.
Outlook, risks and contingencies
- Management said it expects continued investment in sales and marketing, research and development, customer support, data center infrastructure and international operations, and does not expect near-term profitability. It believes cash, investments and anticipated operating cash flows will be sufficient for working capital and operating needs for at least the next 12 months. The filing provides no specific revenue or earnings guidance in the supplied text.
- Management said COVID-19 had not materially adversely affected the business to date, but its future effects remain uncertain. The company also cited uncertainty related to the Russia-Ukraine conflict, inflation, interest rates and broader economic conditions.
- Key business risks include customer renewal and expansion, competition, execution of growth and hiring plans, service availability and cybersecurity, third-party hosting dependence, privacy and data-protection regulation, and foreign-exchange exposure. The company does not currently hedge foreign-currency transactions.
- There was no material pending litigation reported. Operating lease commitments totaled $377.0 million; product-related obligations totaled $1.042 billion. The company also reported a remaining $9.4 million commitment to the Black Economic Development Fund.
- Disclosure controls were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether customer growth and higher subscription revenue per customer continue, and how renewal rates and customer expansion develop.
- Whether operating expense growth, particularly sales and marketing, research and development, and stock-based compensation, converts into sustainable operating leverage.
- Cash generation and the timing and funding of the $19.4 million 2022-note maturity, 2025-note obligations, and convertible-note conversions; the 2025 notes were convertible during Q2 2022 under the stated stock-price condition.
- How changes in interest rates affect the fair value of the investment portfolio, and whether unrealized investment losses or foreign-exchange movements become material.
- Whether hosting, security, privacy, regulatory, labor-cost, inflation, or geopolitical risks affect customer demand, service delivery, costs, or the outlook.